@booklet {drake_technology_2012,
	title = {Technology Choice and Capacity Portfolios Under Emissions Regulation},
	year = {2012},
	month = {sep},
	publisher = {Harvard Environmental Economics Program},
	type = {Discussion Paper},
	address = {Cambridge, Massachusetts, {USA}},
	abstract = {We study the impact of emissions tax and emissions cap-and-trade regulation on a firm{\textquoteright}s long-run technology choice and capacity decisions. We study the problem through a two-stage, stochastic model where the firm chooses capacities in two technologies in stage one, demand uncertainty resolves between stages (as does emissions price uncertainty under cap-and-trade), and then the firm chooses production quantities. As such, we bridge the discrete choice capacity literature in Operations Management ({OM}) with the emissions-related sustainability literature in {OM} and Economics. Among our results, we show that a firm{\textquoteright}s expected profits are greater under cap-and-trade than under an emissions tax due to the option value embedded in the firm{\textquoteright}s production decision, which contradicts popular arguments that the greater uncertainty under cap-and-trade will erode value. We also show that improvements to the emissions intensity of the "dirty" type can increase the emissions intensity of the firm{\textquoteright}s optimal capacity portfolio. Through a numerical experiment grounded in the cement industry, we find emissions to be less under cap-and-trade, with technology choice driving the vast majority of the difference.},
	author = {Drake, David F. and Kleindorfer, Paul R. and Wassenhove, Luk N.}
}
